Wednesday, Nov 12, 2008
Merrill Lynch Chief Executive John Thain said the global economy is in a deep slowdown and will not recover quickly, and the environment recalls 1929, the advent of the Great Depression.
Speaking Tuesday at his bank’s annual financial services conference, Thain said he was “cautiously optimistic” about the outlook for the industry. But he said credit remains constricted and asset prices generally are still falling.
“The U.S. economy is contracting very rapidly,” creating uncertainty “at least over the next few quarters,” Thain said. “We are going to be in a very difficult economic environment for a significant period of time.”
Conditions deteriorated as the housing market collapse mushroomed into a more general crisis of confidence.
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This resulted in market-shaking events, including the Sept. 15 bankruptcy of Lehman Brothers [LEHMQ 0.06 — UNCH (0) ] and Merrill’s [MER 14.90 -0.61 (-3.93%) ] decision the same day to quickly sell itself to Bank of America [BAC 18.69 -0.79 (-4.06%) ] for $50 billion.
Through Monday, the value of the all-stock merger had fallen 42 percent because Bank of America shares are down. Thain nevertheless said market conditions for financial services companies were improving, in part because of the government’s $700 billion industry bailout package.
As an example, he said Merrill recently issued three-month commercial paper, which typically funds companies’ day-to-day operations. For a time, it had been able to issue only overnight paper.